Banking industry primed for a pocket-sized revolution

Mondo needs to raise a further £20m to get the bank off the ground, which will happen once the ink is dry on its new banking licence.

Jumping through the regulatory hoops has been “very challenging”, Blomfield admits. “But it’s a good thing that it’s so difficult. It’s a huge responsibility to take deposits and issue loans. If you mess up, you ruin lives.”

Within the next six months, Mondo expects to receive its restricted licence, becoming a fully functional bank by the end of the year. The licence is next to useless, as it will only allow Mondo to hold £50,000 in capital on behalf of its customers.

Blomfield expects the business to grow quickly, rising from 27 staff to 55 by the end of 2016. It also hopes to have “millions” of customers within three years. It makes money from the overdrafts and has no other revenue streams or financial products.

“We’ve all been stung by overdraft fees,” says Blomfield. “When you’re heading towards zero, we’ll warn you and say, ‘Do you want a £200 overdraft for 70p?’ If you don’t, we won’t charge you and we’ll give you the option to bounce payments free of charge.”

He sees Mondo working alongside the new players in financial technology that have disrupted the activities traditionally owned by high street banks.

“There’s been an unbundling of financial services,” he says. “You go to TransferWise for currency exchange and Funding Circle to borrow money for your business. We want to be the central hub for these platforms, so if you have spare cash in your account, you can move some into Funding Circle. We’re a marketplace bank unlike the traditional lenders who want to own you and sell you their own financial products throughout your whole life.”

Regulation is helping to usher in this brave new world where everything from invoice finance to mortgages is looked after by an individual specialist: “The PSD2 is ripping apart the bank account,” explains Blomfield, referencing new European banking rules, which are being phased in. “Banks now have to open up their products so that you can have an ISA with one bank, a credit card with another and debit card with us.”

It’s a model that has yet to catch on in developing nations. “We learned a lot from Nbank in Poland, Tinkoff Bank in Moscow and Nubank in Brazil,” says Blomfield.

Several other digital-only banks are also poised to launch in the UK: Durham-based Atom Bank was recently valued at £150m and Tonbridge-based Starling Bank raised £48m in January, but remain a few stages behind Mondo.

The Government has been very vocal about its plans to encourage more competition in the banking sector and has said that it will grant 15 new banking licences over the next five years. These new players will use technology to make their accounts more appealing than those offered by high street rivals.

Cybersecurity breaches and online fraud plagued incumbent banks last year, with a number of outages and highly-publicised attacks.

According to Blomfield, Mondo’s model makes it much less susceptible to digital crime. “When you have a huge branch network, each branch is a network port and the attack surface is massive,” he claims. “We have no branches so our attack surface is much smaller.”

Mondo pays external security firms to find vulnerabilities, he adds, and user security is assured using “multifactor authentication”, from thumb prints, to image authentification to behind-the-scenes checks. Blomfield says Mondo aims to “target the mass market over 30-40 years”.

“The smartphone has changed the world and over the last decade, things that were considered science fiction have become reality,” he adds. “Consumers expect so much from every area of their lives but banking hasn’t kept up until now.”

The article first appeared in the Telegraph